Bank Secrecy Law, Money Laundering and Tax Evasions

One of the greatest advantages of having an offshore bank account in Singapore is its bank secrecy law because the chance of anyone knowing you have got a huge sum of money which you really want to hide for any reason is pretty low. And I am not saying Singapore is definitely a money laundering centre but who is to say that Singapore will not become one in the future?

According to the Bloomberg article on the rapid growth of Asia’s millionaires, it was reported that Asia had 2.3 million millionaires last year, an increase of 8.2%. Singapore millionaires rose 22.4% to 48,500 while in US, a 10% increase to 2.5 million.

Naturally, it is not difficult to assume that some of these world’s riches might be dealing in money laundering activities to amass their wealth while some would attempt to avoid massive taxes levied on their assets and earnings. In the case of the latter, if you were a millionaire who does not want to pay extra taxes on your income, what would you do? I would certainly hide my money in places with low levels of transparency to avoid scrutiny by government authorities in my home country. Illegal activities like these are not something new to this world:

“Historically, bank secrecy laws have served an important political function. Germany, because of its past dealings with dictatorships, traditionally resisted relaxation of bank secrecy laws, contending those laws were essential to its citizens as a safeguard against political dictatorship. Germany recently embraced banking information exchange, noting that secrecy laws are no longer protecting citizens against dictatorships but are being used by international drug dealers and money launderers to hide criminal enterprises.” – Tax Prophet

So since Singapore will not be changing its tough banking secrecy laws despite calls from the European Union for more transparency as reported in Reuters, how prepared are our monetary authorities, MAS and tax authorities, IRAS to curb any form of organised crime like money laundering and tax evasion activities as a result of the secrecy laws? Now that we are building casinos in Singapore, it is even more critical that we look into the degree of casino compliance with the reporting requirements. From what I know, there has yet been any auditing standards on casinos, for example.

More information on Bank Secrecy Laws of Singapore can be found here.
More information on how money laundering works can be found here.

Transparency and Good Governance to Satisfy Singaporeans and Retain Talents

Singapore is already a financial hub in Asia alongside with Hong Kong and Tokyo, but it needs to retain high-valued talents to fill important positions in the private sectors, government-linked companies (GLCs) such as Singapore Technologies and Singapore Airlines (SIA), or even statutory boards such as CPF, HDB and LTA.

I applaud Singapore’s “leaving no stones unturned” kind of approach in attracting global and regional activities with the introduction of numerous initiatives throughout the years to enhance our competitiveness in the global market. Two important examples were the recent reduction of the corporate tax rate by 2% from 20% to 18% and the increase in the corporate tax exemption threshold from S$100,000 to S$300,000, both taking effect from Year of Assessment (YA) 2008. There was also an earlier initiative under the Unilateral Tax Credit Scheme for service incomes which allows to cover all service incomes remitted from all non-treaty countries such as the USA(Limited Treaty) with effect from YA 2003.

Providing all these benefits would undoubtedly enlarge our scope to attract more foreign investments as we are providing them with lower business startup and maintenance costs which could in turn push up net profits and benefit our economy.

However, Singapore has not done enough to retain talents that it wants. Yes, in terms of individual taxation for non-resident professionals in Singapore, the Inland Revenue of Singapore (IRAS), with immediate effect, has recently made it easier for the income tax filing of these professionals by announcing a final income tax of 15% levied on the gross income of these individuals in order to reduce the compliance cost incurred. The previous arrangement was a withholding tax (WHT) of 24.5% net of expenses. But more is needed to attract more talents to come here and perhaps taking up citizenships eventually as professionals usually do have high demands for transparency and good governance.

Transparency and Good Governance – If the government wants transparency, every institution must develop mechanisms that inform the public of their processes. It encompasses not just government institutions like Ministry of Finance or Ministry of Manpower but also the civil society and the media. The Singapore government ,which fully comprises PAP ministers, does not have any opposition leaders sitting in the cabinet to debate on policies before they are dished out to the public. Future ministers may act selfishly for their benefits or party with the help of a compliant, pro-government media to report only the necessaries. When more new unpopular policies are dished out without much engagement with the population, would they still stay in Singapore or would they pack up and leave for a greener pasture when the going is bad? Years of goodwill towards them would be wasted and we would still be back to square one, facing a shortage of talents.

Our government should really consider having more open and live TV debates for the good of all. Sensitive issues like the Compulsory Annuities and CPF changes, are tabled and debated among members of the government, social organisations, opposition parties, Singaporeans and foreigners. When these happen, there would be a less chance of a failure in policy implementation due to group think and:

a. the government is able to present its detailed studies and analysis yet shed off its ‘top-down’ authoritative approach of governance

b. social organisations like Society of Financial Service Professionals and Law Society could give their inputs and comments on the issues tabled

c. Singaporeans could decide for themselves if the government policies are fair to them

d. Foreign talents could decide for themselves from the discussions on employment and education for their younger generation for example, if Singapore is the right place for them.

I think if our government is able to allow more regular engagements among all sectors, it would make our Singapore society a more cohesive, dynamic and tolerant one and would make it so attractive to both Singaporeans and foreign talents who have intentions to make Singapore their home.

What Will They Tax Next?